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1031 Exchange Guide: Basics, Resources & Intermediaries

  

What are 1031 Tax Deferred Exchanges & How Do They Work?

In a “1031 exchange” (A.K.A. like kind exchange), an asset – typically real estate – is sold and the proceeds are then reinvested in a “like kind” asset.

By conducting this exchange, the individual will not recognize any losses or gains as per Section 1031 of the Internal Revenue Code. Capital gains taxes are deferred until property is sold and not exchanged.

  • The exchanged property must be identified within 45 days
  • All proceeds of the initial sale must be re-invested in the like kind property within 180 days of that sale.
  • When exchanging property, you must do so if like kind. Real property has to be exchanged with real property, not personal property.
  • 1031 Exchanges can only take place with investment property, commercial property, personal property or trade property (no personal residences)
  • Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.

Qualified Intermediaries exist to help individuals and businesses execute 1031 exchanges of all kinds. You can find a directory of these companies below.

1031 Exchange Example

An investor decides to sell a four-plex for $200,000 that he purchased 5 years ago for $100,000. If he invests the $200,000 in another investment property — say a 10-plex — through a 1031 exchange, he will not have to pay any capital gains taxes on it after the sale.

Assorted 1031 Exchange Resources

List of 1031 Qualified Intermediaries